Fed officials stick mainly to housekeeping matters

Not much discussion of the road ahead, lots on road behind

WASHINGTON (MarketWatch) - A bevy of Federal Reserve officials took to the microphones Tuesday, but their remarks showed more interest in clarifying some housekeeping issues rather than discussing the road ahead.

These were the first Fed speeches since the central bank trimmed its target for overnight lending rates to 2% last week. Many analysts believe the Fed wants to hold rates at 2% for an extended period to see whether the economy can gain momentum over the summer.

But Fed officials shied away from discussing a possible end of the easing campaign. Instead, they focused on issues left over from the frantic first four months of the year.

First and foremost, Fed officials seemed to want to make clear that they are on top of the financial market turmoil even if it hasn't been exactly solved yet.

This is important because for a few weeks in January, Fed officials acted as if their hair was on fire as they scrambled to cut rates in about as panicky a fashion as imaginable.

Clearly the central bank has gained some confidence, especially as their rescue of the creditors of Bear Stearns Co in mid-March and the alphabet-soup innovative techniques to provide cash to bond dealers and banks seemed to head off the worst-case scenario of a financial market meltdown.

Federal Reserve chairman Ben Bernanke took the lead in trying to restore the understated calm that central bankers tend to favor in their public appearances.

In an early morning speech Tuesday, Bernanke graciously first mentioned the contributions that the European Central Bank and the Bank of England made in the fight against the financial market turmoil before turning to pat himself on the back for the Fed's own efforts.

In a signal that the Fed remains ready for action, Bernanke said conditions in financial markets "are still far from normal" and the Fed would increase the size of its term auction facility auctions if necessary. See full story.

Inflation stance

The second objective of the Fed speeches was to extinguish all market chatter that the central bank is being too soft on inflation.

Here, Fed officials in their speeches simply scrambled to win the toughest-foe-of-inflation award.

Kansas City Fed president Thomas Hoenig offered that inflation was at "unacceptable levels." When the Fed decides to hike rates, they will do so swiftly to make sure inflation remains under control, he said.

Dallas Fed president Richard Fisher, who has voted against the last three rate cuts, announced that all Fed officials abhor inflation but he abhors it most.

Even San Francisco Fed president Janet Yellen, known as one of the Fed officials the least worried about rising prices, decided to rattle her inflation-fighting saber, saying that it would be foolhardy for the central bank to be complacent about inflation, even if was going nowhere fast. See full story.

Economists noted that it was unrealistic to expect the Fed to discuss in any detail its upcoming policy choices.

There is a raft of economic data to be released before the next formal Federal Open Market Committee meeting at the end of June.

The latest reading on consumer inflation will be released Wednesday by the Labor Department. Economists are expecting a 0.2% increase in the headline consumer price index and a matching 0.2% gain in the core rate that excludes energy and food prices. But some economists are bracing for bad news, with the headline index coming in up 0.4%. This would test whether the market takes comfort in the Fed's tough inflation talk.

Greg
Robb

Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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